Company Perspectives:

The Aristotle Corporation, founded in 1986 and headquartered in New Haven, Connecticut, is a leading manufacturer and global distributor of education, health, and agricultural products.

Key Dates:

1986:

FFB Corporation is formed as a holding company for First Federal Bank.

1992:

First Federal Bank is seized by FDIC.

1993:

The company changes its name to The Aristotle Corporation.

1999:

Simulaids is acquired.

2002:

A merger is completed with Nasco International.

Company History:

Originally formed as a bank holding company, The Aristotle Corporation is now involved in the manufacturing and distribution of a variety of education, health, and agricultural products through two primary subsidiaries: Nasco International, Inc. and Simuladids, Inc. Their products, mostly sold through catalogs, are divided between educational offerings and commercial offerings. Educational offerings include arts and crafts items for schoolchildren; classroom science equipment, as well as live and preserved specimens; math teaching aids for schoolchildren; healthcare training materials (such as manikins used for training in cardiopulmonary resuscitation) appropriate for nursing and medical school, emergency training professionals, and health teachers; teaching aids for family and consumer sciences, targeting dieticians, nutrition instructors, and family and consumer science teachers; fun learning activities for preschool children; and items for use by physical education professionals. Aristotle's commercial offerings include teaching aids for agricultural education to help farmers and ranchers with such tasks as breed identification, grooming, artificial insemination, and animal health; products for activity therapists in nursing homes and assisted living homes, including arts and crafts and games; resources that help in conducting an activity program in an assisted living home; and Whirl Pak sampling bags for use by food and microbiology laboratories. With its headquarters located in Stamford, Connecticut, Aristotle maintains operations in California, Colorado, Michigan, New York, and Ontario, Canada. Although publicly traded on the NASDAQ, the company is 90 percent owned by Geneve Corporation, which is run by Aristotle's president Steven B. Lapin and board member Edward Netter.

Bank Holding Company Formed in 1986

The roots of Aristotle date back to 1986 when FFB Corporation was established as a holding company for New Haven-based First Federal Bank of Connecticut as part of an effort to take the federal thrift public. In 1988, the bank changed from a federal charter to a state chartered savings bank, in the process changing its name to First Constitution Bank. In turn, FFB Corporation changed its name to First Constitution Financial Corporation. At the time of the switch, the bank had assets of $1.8 billion, but some poor real estate investments in Connecticut soon put the institution in severe financial jeopardy when the bottom fell out of the local real estate market. Displeased shareholders, including Geneve Corp., forced the resignation of the chief executive officer of the bank and the holding company by threatening a proxy fight. The board was also enlarged to accommodate a director committed to the protection of shareholder interests. As loses mounted--during the first months of 1990 First Constitution lost $58.4 million--the bank was forced to cut staff and close three branch offices. The downward spiral continued over the next two years and in October 1992, when First Constitution was unable to complete a recapitalization plan it had filed with regulators, the Federal Deposit Insurance Corp. took preemptive action. Even before the bank was technically insolvent, it seized control and sold the bank to Webster Financial Corp., another Connecticut bank holding company.

First Constitution Financial Corporation wrote off its investment in the bank to the sum of $25.4 million. What was left was a corporate shell with no operating subsidiaries. Nevertheless, it did have $10 million in cash plus $120 million in tax credits. These tax credits, however, could not be used unless the company was actually engaged in a business. In April 1993, First Constitution changed its name to The Aristotle Corporation, and in September, nearly a year since the FDIC seizure, the holding company returned to active business, paying $4.5 million to acquire Strouse, Adler Company. 132-year-old Strouse designed, manufactured, and marketed women's intimate apparel in two categories: specialty brassieres and women's shapewear. Specialty brassieres were used with backless, strapless, and halter-top garments. The company's shapewear products provided abdominal support and control, much like a traditional girdle. Items included "body briefers," medium control panties, and control bottoms. Core Strouse brand names were Smoothie and Fleur de Lace. Customers included such major department stores as Macy's, Bloomingdale's, Nordstrom, Nieman Marcus, and Lord & Taylor. The company also marketed its wares through catalogs and provided private label goods to retailers, including Victoria's Secret, Dillard's, and JC Penney.

FDIC Suit Resolved in 1995

Aristotle was still not free of its previous banking experience, however. In April 1995, the FDIC sued the company in an effort to recover tax refunds paid and due to Aristotle. A class action lawsuit filed in 1990 also remained pending. Finally, in 1996 Aristotle was able to put these outstanding matters to rest. It signed a settlement agreement with the FDIC that allowed the company to retain $2 million of a $4 million tax refund; on its side, Aristotle agreed to relinquish further claims to another $1.7 million in tax refunds. In return, Aristotle and its former officers and directors, including those with First Constitution Bank, were absolved from any further claims connected to the 1992 failure of the bank. Furthermore, in August 1996, Aristotle reached a settlement on the 1990 class action suit when a Federal Court Judge approved a proposal. According to the company, the settlement presented no material financial impact on Aristotle. However, with the cloud of litigation removed, Aristotle had a chance to truly move beyond its banking roots, raise new capital, and concentrate on the task of growing shareholder value.

Although there were indications at the time of the Strouse acquisition that Aristotle might make further acquisitions in the apparel industry, management was disappointed with the performance of its lone subsidiary. In July 1998, Aristotle sold Strouse to Sara Lee Corporation for $21.5 million in cash plus the assumption of $8 million in debt. As a result, once again Aristotle was without an operating subsidiary. Nearly a year would pass before Aristotle settled on a new line of business: the fast growing for-profit education field. In April 1999, it acquired Woodstock, New York-based Simulaids, Inc. for approximately $8.7 million. Established in 1963, Simulaids manufactured health and medical education teaching aids. Products included manikins and simulation kits for training in CPR, emergency rescue, and patient care. Simulaid sold its products internationally through distributors and catalogs. Primary end-users included nursing and medical schools as well as fire and emergency medical departments. In connection with the Simulaids acquisition, Aristotle established a relationship with Nasco International, Inc., a major manufacturer and distributor of educational materials which agreed to help Aristotle in adding more assets in the for-profit education field. Nasco was a unit of Aristotle's major shareholder, Geneve Corporation.

Aristotle's next move in the education field came the following year, in September 2000, when it bought an 80 percent stake in Safe Passage International, Inc. for an aggregate price of some $1.6 million. Management of Safe Passage retained the remaining 20 percent of the business. Operating out of Rochester, New York, Safe Passage was started in 1989 to develop computer-based training programs in conjunction with the airline industry and the Federal Aviation Agency for use in airport security. Aristotle hoped to create synergies between its two subsidiaries with the goal of transforming traditional medical manikins into computer-driven patient simulators. Moreover, Aristotle was interested in developing computer-based training programs that could provide online continuing education credits for healthcare professionals.

Aristotle soon veered away from the high-tech arena. In November 2001, majority shareholder Geneve engineered a reverse merger between Aristotle and Wisconsin-based Nasco, with Aristotle the surviving entity. Nasco was far larger than Aristotle, generating more than $150 million in annual revenues in fiscal 2001 compared to the $8.1 million posted by the combined efforts of Simulaids and Safe Passage. However, Aristotle still retained significant tax credits from its previous life as First Constitution Financial Corporation. By being folded into Aristotle, Nasco was able to enjoy a tremendous tax break, to the benefit of both Aristotle and Nasco shareholders. As a result of the merger, completed in 2002, Geneve increased its stake in Aristotle from 51 percent to more than 90 percent. While Aristotle's chief executive stayed on in that capacity, Geneve's president and chief operating officer, Steven B. Lapin, assumed these same positions in the much larger Aristotle Corporation.

Nasco was launched in 1940 by a Wisconsin agriculture teacher who, working out of his basement, created instructional books and assorted teaching aids. Over the next 60 years, the company branched off in numerous directions, ultimately selling more than 50,000 products through 25 specialty catalogs aimed at teachers, farmers, and industrialists. Nasco sold fake substances such as blubber, yogurt, crackers, and wheat bread. It also sold very real African clawed frogs, used by researchers around the world and raised in the company's own colonies as part of Nasco's lab supplies and kits sold to schools. Other educational products included a crying infant simulator and a realistic human head and torso dummy used to practice dislodging food and clearing blocked airways. Nevertheless, only three of the company's 25 catalogs served the healthcare market; the bulk of Nasco's business was devoted to the marketing of educational supplies for K-12 schoolchildren. The addition of Simulaids' proprietary mannequins and simulation kits were expected to greatly enhance Nasco's three healthcare catalogs. The combined business also hoped to use its greater breadth in Nasco's planned effort to expand into the Canadian healthcare business.

Safe Passage Interest Sold in 2002

In 2002, Aristotle made a pair of changes. In September, CEO John Crawford announced his retirement. Although he stayed on as a member of the board and the executive committee, responsibility for the day-to-day running of the business became the province of president and COO Lapin. In addition, Aristotle chief financial officer resigned, replaced by Dean Johnson, Nasco's CFO for the previous five years. Also in 2002, near the end of the year, Aristotle sold its 80 percent interest in Safe Passage, thus ending the company's foray into computer-driven educational products. Financially, the reverse merge between Aristotle and Nasco showed immediate results in fiscal 2002. While the two business had combined for $162 million in revenues for fiscal 2001, and income showed only modest growth in fiscal 2002, to $165.9, the impact on the bottom line of the balance sheet was hard to ignore. Net earnings increased from $8.8 million in fiscal 2001 to $30.3 million in fiscal 2002.

Aristotle continued to grow its for-profit educational business in 2003. It acquired Hann Crafts, an Otterbein, Indiana, company that produced and sold sewing kits used in middle-school family and consumer science classes. In order to fund further acquisitions to strengthen Aristotle's holdings, management announced in October 2003 that it had signed a five-year, $45 million credit agreement with Bank One, N.A. and Johnson Bank of Wisconsin. This revolving line of credit was a significant improvement over the company's prior $31 million credit capacity. Aristotle experienced a decline in revenues during fiscal 2003, to $163.2 million, but earnings before income taxes improved from $16.7 million in 2002 to $20.3 million in 2003. Business conditions were generally poor for the company, in large part due to many troubled state economies, which adversely impacted school budgets around the country and resulted in decreased sales for Aristotle. Nevertheless, the company, after making the transition from bank holding company to a for-profit educational concern, appeared well positioned to enjoy ongoing growth in the next phase of its corporate history.